Bond Market Update

CPI Today, PPI Tomorrow

• U.S. Treasuries settled today's session mixed and little changed, surrendering a decent chunk of overnight gains in spite of a CPI report for July that was deemed market-friendly and a solid $42 billion 10-yr note auction. The market-friendly designation for the CPI report stemmed from in-line numbers for the month and some slight disinflation for the year-over-year readings. Following the report, the probability of a 25-basis point hike at the September FOMC meeting slipped to 40.1% from 45.9%, according to the CME FedWatch Tool. Buyers backed away as the cash session progressed, though, mindful that the July PPI report awaits tomorrow, that oil prices remain elevated, and that the July Treasury budget featured the largest monthly deficit (-$432.0 billion) since October 2021.
• Yield Check:
  • 2-yr: -2 bps to 4.20%
  • 3-yr: -1 bp to 4.27%
  • 5-yr: -2 bps to 4.37%
  • 10-yr: unch at 4.68%
  • 30-yr: +1 bp to 5.25%

• News:
  • President Trump claimed the U.S. has control over the Strait of Hormuz and said that Iran would "get blown away" if they took any action. Bloomberg
  • Iran's President Masoud Pezeshkian held a meeting with Supreme Leader Mojtaba Khamenei. They discussed worsening living standards and unity in the country. Bloomberg
  • The U.S. economy was defined by a K-shaped gap for years. That divide is narrowing as lower income households catch up on consumer spending. Axios
  • White House wants to lower capital gains tax on home sales, according to CNBC
  • Bank of Korea's Deputy Governor Sangdai said there will likely be more rate hikes due to persistent core inflation and strong economic growth.
  • Treasury permanently ends beneficial ownership reporting requirements for millions of small business owners.
  • MBA Mortgage Applications Index 3.6% wk/wk, with refinance applications up 5% and purchase applications up 3%.
  • USD/JPY -0.1% to 159.08, with the yen weakening from a post-intervention high of 155.23 seen on August 3.
  • Germany's CPI held at 2.8% yr/yr with the final July report, while Italy's CPI ticked up slightly to 2.9% from the preliminary report of 2.8%, leaving them well ahead of the ECB's 2% inflation target.
• Today's Data:
  • Total CPI was up 0.1% month-over-month in July (Briefing.com consensus: 0.1%) following a 0.4% decline in June. That left the year-over-year rate at 3.4%, down from 3.5% in June. Core CPI, which excludes food and energy, was up 0.2% month-over-month (Briefing.com consensus: 0.2%) following an unchanged reading for June. On a year-over-year basis, core CPI was up 2.5% versus 2.6% in June.
    • The July CPI report, at the least, did not stoke "new" concerns that the Fed will have to raise rates at the September FOMC meeting. That is the key takeaway from the report, and it was embedded in the realization that this report came in as expected.
  • The Treasury Department reported a $432.3 billion deficit for July versus a deficit of $291.1 billion for the same period in July 2025. Receipts totaled $334.0 billion, while outlays reached $766.3 billion.
    • The key takeaway from the report is that the net interest outlay exceeded the national defense outlay, which is saying something given that the U.S. is at war with Iran.
  • The 10-yr note auction saw the high yield of 4.683% pretty much stopping on the screws with the 4.682% when-issued yield. This was a decent auction with good dollar demand, evidenced by a 2.53 bid-to-cover ratio that exceeded the prior 12-auction average.
• Commodities:
  • WTI crude: +0.1% to $83.26/bbl
  • Gold: +0.6% to $4474.40/ozt
  • Copper: -0.3% to $6.61/lb
• Currencies:
  • EUR/USD: -0.2% to 1.1519
  • GBP/USD: -0.1% to 1.3487
  • USD/CNH: flat at 6.7467
  • USD/JPY: +0.1% to 159.49
• The Day Ahead:
  • 08:30 ET: July PPI (Briefing.com consensus +0.1%; prior -0.3%)
  • 08:30 ET: July Core PPI (Briefing.com consensus +0.3%; prior -0.2%)
  • 08:30 ET: Weekly Initial Jobless Claims (Briefing.com consensus at 205K; prior 199K)
  • 08:30 ET: Weekly Continuing Jobless Claims (prior 1.801 mln)
• Treasury Auctions:
  • $25 bln 30-yr Treasury bond auction results at 13:00 ET